issue: Social Policy

Manufacturing, Tech/Telecom and the Falling Labor Share

Posted on by The Progressive Policy Institute

Distressingly, the labor share of income in the US has been on a long -term downward trend. Indeed, the labor share  is lower now than it was in 2006, before the last recession. Recent research has proposed that the labor share has fallen, in part, because market power has been increasing across the US economy.

However, it’s important to understand that the fall in the labor share has been highly uneven. In particular,  the manufacturing labor share has experienced a very deep plunge. The labor share of value-added in manufacturing has fallen from 61% in 1991 to 51% in 2006 to 46% in 2016.*

 

By contrast, the labor share in the tech/telecom sector has been on a mild upward trend, with the exception of a blip from the 2000 tech boom.  The labor share in the tech/telecom sector was 45% in 1991, 48% in 2006, and 51% in 2016. (For the purposes of this analysis, we define the tech/telecom sector to include software and other publishing; broadcasting/telecom; internet publishing, search and data processing; and computer systems design).

 

This definition of the tech/telecom sector excludes ecommerce fulfillment centers, which are mainly counted in the warehousing sector. We note that over the past ten years, labor share in warehousing has risen from 70% to 80%, coincident with the rapid expansion of ecommerce.

The figure below sums up this analysis. Note that tech/telecom labor share is on a mildly upward trajectory.  Manufacturing and retail labor share are on long-term downward trends.  And labor share in the rest of the private sector is basically flat, going from 49% in 1991 to 50% in 2016.

By this analysis, the fall in the overall private sector labor share over the past 25 years was almost entirely driven by sharply declining shares in manufacturing (responsible for 89% of the drop), with some contribution from retail. The interesting question, then, is why the manufacturing  labor share fell so consistently–does increased concentration have a role? If we just look at domestic manufacturing, there has been an increase in concentration. In 2012, the top 100 US manufacturing companies accounted for about 40% of manufacturing shipments, up from 31% in 1997.

More work needs to be done. But it’s reasonable, at least, to consider the role of manufacturing concentration.

 

 

 

 

*These figures are derived from BEA’s data on compensation and value-added by industry, as last updated in November 2017.

 

 

 

 

 

 

 

Wage Winners in 2017: Ecommerce and Retail?

Posted on by The Progressive Policy Institute

Overall, 2017 was still a weak year for wage growth. In the private sector, real hourly wages for production and nonsupervisory workers rose only 0.2% in 2017, the slowest rate since 2012.

However, production and nonsupervisory workers did do significantly better in some industries. The table below lists the top 2017 increases in real hourly wages for large industries, defined as 3-digit industries with more than 500K production and nonsupervisory workers.

The top large industry for real wage growth in 2017 was warehousing, where a 4.9% gain in real hourly wages  for production and nonsupervisory workers was likely driven by the growth in ecommerce fulfillment center employment.

Other big winners were some retail industries and restaurants. These gains in part reflect increases in minimum wages for 21 states in 2017. But the other driving force is the need for brick-and-mortar retailers to upskill their workers to better compete with ecommerce.

2017 Wage Leaders for Large Industries*
Real hourly wage gain for production and nonsupervisory workers, 2017
Warehousing and storage 4.9%
Chemical/pharma manufacturing 4.7%
Sporting goods, hobby, music, and book 2.8%
Food services and drinking places 2.5%
General merchandise stores 2.5%
Heavy and civil engineering construction 2.2%
Repair and maintenance 2.2%
Clothing and clothing accessory stores 2.1%
Personal and laundry services 2.0%
Building material and garden supply stores 2.0%
Health and personal care stores 1.6%
*3-digit industries with more than 500K production and nonsupervisory workers
Data: BLS

 

If we just focus on warehousing for a moment, we see that real hourly wages in the industry started to rise after 2013, just as employment started to soar from the big expansion of ecommerce fulfillment centers. The left hand axis (red line) is real hourly wages for production and nonsupervisory workers, in 2017$, and the right hand axis (blue line) is employment of production and nonsupervisory workers.

 

 

 

 

 

PPI 2017 Ecommerce Job Review

Posted on by The Progressive Policy Institute

In this note we summarize the growth in ecommerce jobs in 2017, based on the methodology described in our September 2017 report,  “How Ecommerce Creates Jobs and Reduces Income Inequality.”

  1. We find that the number of ecommerce jobs rose by 133K in 2017, with half of that amount coming from the growth of ecommerce fulfillment centers in the warehousing industry.  Local delivery contributed 38K jobs, found in the ‘couriers and messenger’ industry. These numbers do not include the ecommerce deliveries done by the USPS, or any temporary workers that fulfillment centers might hire.
  2. We estimate that brick-and-mortar retail jobs rose by 13K jobs in 2017.
  3. Measured as FTEs (fulltime equivalent), the number of ecommerce jobs has risen by 592K since 2012.
  4. Measured as FTEs, the number of brick-and-mortar retail jobs has risen by 456K since 2012 (yes, you read that right).
  5. Combined, the brick-and-mortar retail and ecommerce sectors have added more than 1 million FTE jobs since 2012.

Ecommerce Job Growth, 2016-17
     
  Change in jobs, 2016-17
  (thousands)  
Brick-and mortar retail 13  
Ecommerce 133  
       Electronic shopping 29  
       Couriers and messengers 38  
       Warehousing 66  
     
Data: BLS    

 

The Amazon Jobs Effect: Kenosha County, Wisconsin

Posted on by The Progressive Policy Institute

Amazon is the fastest US company–and perhaps the fastest company anywhere–to 300,000 workers. Its rapid expansion is creating tech-enabled work in virtually every corner of the country, with our estimates showing that fulfillment center jobs pay 31% more, on average, than brick-and-mortar retail jobs in the same area.

Now, there are all sorts of interesting questions about what happens next. Some people have worried that the fulfillment center jobs will fade away as the operations get increasingly roboticized. By contrast, our view is that fulfillment centers will become critical hubs for the new “Internet of Goods“: By lowering the cost of shipping and creating a pool of tech-enabled workers, areas with ecommerce fulfillment centers will  have a head start in attracting the next wave of manufacturing startups.

The answers to these questions, of course, bear on the important debates about the value of tax and other public incentives for Amazon fulfillment centers and the company’s HQ2. I haven’t gotten involved in these discussions directly, because they really are about the shape of the future economy. If you think that robots are going to eat all of our jobs, then tax incentives never make sense. If you think that we are just at the beginning of the transformation of  physical industries and the creation of a new wave of tech-enabled jobs in physical industries such as distribution, manufacturing, and agriculture, then offering tax incentives to get a piece of the future is far-sighted thinking.

However, in the midst of all of these very interesting discussions, I really must address a new study from the Economic Policy Institute which purports to show no employment gains from the opening of an Amazon fulfillment center. More precisely,  “[t]wo years after an Amazon fulfillment center opens in a county, overall private-sector employment in the county has not increased.”

Really?  This result does not pass the smell test. You can raise all sorts of long-term questions. But in the short-term, if you build a giant new fulfillment center, first you get construction jobs in the years before the center opens. Then you get the workers themselves. There’s no plausible mechanism by which those jobs can crowd out other jobs in the samecounty in the short-term.

And I’m not sure about their sample of counties. I look on their list of ‘Amazon’ counties (Appendix Table 3), and it doesn’t include Kenosha, Wisconsin, where the construction of an Amazon fulfillment center in 2013 and 2014, and its opening in June 2015, added thousands of jobs into the local economy.

The chart below plots private sector jobs in Kenosha County against private sector jobs in all of Wisconsin.

 

You can see that right around the time that Amazon arrives in Kenosha, county employment turns up, driven in large part by the increase in warehouse jobs.

Indeed, Kenosha County is effectively becoming a tech-enabled distribution-manufacturing hub. After Amazon opened its doors, the county attracted companies like Haribo, the German candy giant (and originator of gummy bears), which is building its first North American factory in Kenosha.

 

 

 

 

 

 

 

 

 

 

 

Tax Cuts for the Companies That Deserve It: It’s not too late to put people on par with profits.

Posted on by The Progressive Policy Institute

Corporate tax cuts have long been on the wish list of American businesses, which have rightly argued that both the rates and structure of the U.S. corporate tax code hurt America’s ability to compete globally. U.S. companies are now on track to see dramatic reductions in their tax rates, thanks to the $1.5 trillion tax cut package just passed by the GOP-led Congress and signed by President Donald Trump.

Trump and GOP Congressional leaders claim this relief will spur economic growth through new jobs and higher wages. As proof, they point to a series of commitments by companies such as Boeing and AT&T to provide their workers with bonuses and more worker training.

Unfortunately, it’s far more likely that shareholders, not U.S. workers, will reap the biggest benefits from the Trump tax cuts. According to Bloomberg, for example, many major corporations reportedly told investors in earnings calls this fall that they plan to “turn over most gains from proposed corporate tax cuts to their shareholders” through share buybacks or higher dividends. The Washington Post reported in December that, among America’s 20 biggest companies, just two explicitly promised to hire more workers – and no one committed to raising wages.

Marshall for the NY Daily News, “How Democrats can connect with middle America again: Advice from successful rural pols from left of center”

Posted on by The Progressive Policy Institute

Washington Democrats employ legions of political consultants, entrail readers and data-crunchers to help them figure out how to sway voters. They could save a lot of money by listening instead to Democrats who win elections in red and purple states.

That’s the idea behind a trenchant new report that should be required reading for national party strategists. Despite its optimistic title, “Hope for the Heartland,” the study shines a pitiless light on how badly Democrats have lost touch with rural and working-class America.

Its authors are Rep. Cheri Bustos, a rising star in Congress who represents a mostly rural district in Illinois won by Donald Trump in 2016, and Robin Johnson, an acute observer of heartland politics who hosts a radio show in Iowa on the topic.

Continue reading at NY Daily News.

Moynihan was right: The GOP tax giveaway will lead to safety net cuts

Posted on by The Progressive Policy Institute

When Congress passed a massive tax giveaway to the richest that will add at least $1 trillion to America’s debt late last year, GOP lawmakers were remarkably candid about the next step: cutting the safety net for hundreds of millions of Americans by going after Social Security, Medicare and Medicaid benefits.

As Sen. Marco Rubio (R-Fla.) noted recently when asked about the huge debt the tax bill creates, he said Republicans plan on “instituting structural changes to Social Security and Medicare for the future” to pay for their tax cuts. House Speaker Paul Ryan (R-Wis.) agreed: “We’re going to have to get back next year at entitlement reform, which is how you tackle the debt and the deficit,” he said in December.

This unusual candor may owe something to history.

In many quarters of Washington, the connection between the GOP’s history of reckless tax cuts to the rich and desire to slash the social safety net has been an open secret for almost three decades, thanks largely to former New York Sen. Daniel Patrick Moynihan (D).

In the 1980s, as U.S. debt ballooned because of President Reagan’s tax cuts and defense spending increases, Moynihan maintained that piling up debt to unsustainable levels was part of a deliberate strategy by Republicans, providing them an excuse to then cut the social safety net.

Continue reading at The Hill.

Yarrow for SF Chronicle, “If our children are so ‘precious,’ we must invest in them”

Posted on by The Progressive Policy Institute

We often hear how “precious” a child is, what a “treasure” she is, and how our kids are “our greatest resource.” Neuroscientists tell us that ages 0-3 are the most critical years for cognitive, social and moral development. Economists and business leaders tell us that early childhood education offers one of the best lifetime returns on investment and guarantors of a prosperous economy.

Nonetheless, the United States ranks behind about 30 other rich nations in providing quality, affordable child care, and California is well behind states like Oklahoma and Florida. As Arne Duncan, former U.S. Secretary of Education, told the Atlantic: “I think we value our children less than other nations do. I don’t have an easier or softer or kinder way to say that.”

Three of the nation’s most pressing needs meet when it comes to caring for and educating young children, although they are often treated as separate issues:

•Nearly half of America’s 3- and 4-year-olds aren’t in preschool, and most young children from 0 to 5 years do not have quality child care or pre-kindergarten, compromising their academic and social development and later-in-life productivity as workers.

•Millions of parents cannot afford child care or preschool, forcing them — mostly mothers — either into the stressful “balancing” of work and young children, or to leave the workforce entirely.

•The 2 million child-care and preschool workers are paid abysmally (in California, on average, the annual income of child-care workers is $27,170), have little prestige, and often lack credentials certifying their competence.

Continue reading at SF Chronicle.

Happy Holidays from PPI

Posted on by The Progressive Policy Institute
It’s been a surreal political year, but PPI has much to celebrate this holiday season. Throughout 2017, we expanded our productive capacity and the scope of our political and media outreach significantly. For example, PPI organized 150 meetings with prominent elected officials; visited 10 state capitals and 10 foreign capitals, published an influential book and more than 40 original research papers, and hosted nearly 30 private salon dinners on a variety of topical issues.
Best of all, we saw PPI’s research, analysis, and innovative ideas breaking through the political static and changing the way people think about some critical issues, including how to revive U.S. economic dynamism, spread innovation and jobs to people and places left behind by economic growth, and modernize the ways we prepare young people for work and citizenship.
Let me give you some highlights:
  • This fall, David Osborne’s new book, Reinventing America’s Schools, was published on the 25th anniversary of the nation’s first charter school in Minnesota. David, who heads PPI’s Reinventing America’s Schools project, documents the emergence of a new “21st Century” model for organizing and modernizing our public school system around the principles of school autonomy, accountability, choice, and diversity. David is just winding up a remarkable 20-city book tour that drew wide attention from education, political, and civic leaders, as well as the media. Because David is a great storyteller, as well as analyst, it’s a highly readable book that offers a cogent picture of a K-12 school system geared to the demands of the knowledge economy. It makes a great holiday gift!
  • Dr. Michael Mandel’s pioneering research on e-commerce and job creation also upended conventional wisdom and caught the attention of top economic commentators. Dr. Mandel, PPI’s chief economic strategist, found that online commerce has actually created more jobs in retail than it destroys, and that these new jobs (many in fulfillment centers in outlying areas) pay considerably better than traditional ones. His research buttresses the main premise of PPI’s progressive pro-growth agenda: that spreading digital innovation to the physical economy will create new jobs and businesses, raise labor productivity, and reduce inequality.
  • PPI challenged the dubious panacea of “free college” and proposed a progressive alternative – a robust system of post-secondary learning and credentials for the roughly 70 percent of young Americans who don’t get college degrees. PPI Senior Fellow Harry Holzer developed a creative menu of ways to create more “hybrid learning” opportunities combining work-based and classroom instruction. And PPI Senior Fellow Anne Kim highlighted the inequity of current government policies that subsidize college-bound youth (e.g., Pell Grants), but provide no help for people earning credentials certifying skills that employers value.
  • Building on last year’s opening of a PPI office in Brussels, we expanded our overseas work considerably in 2017. In January, I endeavored to explain the outcome of the U.S. election to shell-shocked audiences in London, Brussels, and Berlin. In April, we led our annual Congressional senior staff delegation to Paris, Brussels, and Berlin to engage European policymakers on the French presidential election and other U.S-E.U. issues, including international taxation, competition policy, and trade. PPI also took its message of data-driven innovation and growth to Australia, Brazil, Japan and a number of other countries.
Other 2017 highlights included a strategy retreat in February with two dozen top elected leaders to explore ideas for a new, radically pragmatic agenda for progressives; a Washington conference with our longtime friend Janet Napolitano (now President of the University of California system) on how to update and preserve NAFTA; public forums in Washington on pricing carbon, infrastructure, tax reform, and other pressing issues; creative policy reports on varied subjects; and a robust output of articles, op-eds, blogs, and social media activity.
I’m also happy to report many terrific additions to PPI in 2017. Rob Keast joined to manage our external relations and new policy development; Paul Bledsoe assumed a new role as Strategic Adviser as well as guiding our work on energy and climate policy; and Emily Langhorne joined as Education Policy Analyst. We will also be adding a fiscal project next year.
All this leaves us poised for a high-impact year in 2018. In this midterm-election year, our top priority will be crafting and building support for a new progressive platform — a radically pragmatic alternative to the political tribalism throttling America’s progress. That starts with new and better ideas for solving peoples’ problems that look forward, not backward, and that speak to their hopes and aspirations, not their anger and mistrust.
It’s a tall order, and we cannot succeed without your help and support. Thanks for all you have done over past years, and we look forward to working with you in 2018.
Happy holidays and New Year!

Weinstein for The Hill, “The right way to create greater competition in consumer credit scoring”

Posted on by The Progressive Policy Institute

Why is the decision to promote competition in the credit scoring model industry complicated? At first blush it would seem to make perfect sense. More competition could lead to lower costs for those who use the scores. Furthermore, it might increase the likelihood that some qualified individuals — who may not be approved for a loan under the criteria utilized by the FICO model — get access to credit.

The problem is not of course more competition. The credit scoring industry — and ultimately consumers — would benefit from more alternatives to FICO. This was discussed at an event I moderated this week in Washington, D.C. hosted by the Progressive Policy Institute.

The issue is the legislation to push for alternative scoring models may simply trade one dominant player (FICO) for another (Vantage).

The reason? Because the owners of Vantage control the supply of information currently used by FICO to make its determination. And given the history of monopolies, it would not be surprising to see Equifax, Experian, and TransUnion use that leverage to the advantage of Vantage, and eventually force FICO out of business.

Continue reading at The Hill.

Updated Credit Scoring and the Mortgage Market

Posted on by The Progressive Policy Institute

Our past event featured newly issued white papers from respected industry experts related to the ongoing GSE credit score evaluation. Topics include: Research from a leading analytics firm on the value that updated credit scoring models will add to the mortgage market; Economic and competitive issues in the credit scoring market as detailed by an industry economist; and Legal and regulatory matters to consider as outlined by a former state banking commissioner.

 

Read the reports:

“Risks and Opportunities in Expanndinng Mortgage Credit Availability Through New Credit Scores” by Tom Parrent

“Alternate Credit Scores and the Mortgage Market: Opportunities and Limitations” by Ann B. Schnare

Kim for The Hill, “Let’s tax college endowments to pay for students’ education”

Posted on by The Progressive Policy Institute

In 2016, the 50 richest universities in America owned $331 billion in endowment wealth, a figure roughly three times the size of California’s entire state budget last year — and ten times the estimated net worth of President Donald Trump. Seventy-five percent of that wealth was held by less by four percent of schools, including such elite institutions as Harvard University, whose endowment was $34.5 billion in 2016), Stanford ($22.4 billion), Princeton ($22.2 billion) and Yale ($25.4 billion).

These outsized sums made college endowments a ripe target in the House GOP’s tax plan, which proposes a 1.4 percent excise tax on the nation’s largest endowments. Though only about 70 schools would be subject to the levy as currently contemplated, it would raise an estimated $3 billion over 10 years.

As a piggy bank for financing lower personal and corporate tax rates, an endowment tax is a terrible idea, and colleges are right to protest. But as a mechanism for correcting some of the current inequities in higher education, endowment reform is well worth pursuing.

Continue reading at The Hill. 

Shining a Light on Small Business Credit: Promoting a Transparent Marketplace

Posted on by The Progressive Policy Institute

For many Americans, self-employment and running  a small business can be an important pathway to the middle class, yet accessing credit to start or grow a business is more difficult, and potentially even more dangerous, than most realize.

While banks have historically provided the majority of small business credit in the United States, and still do, there’s a hitch: Small business lending has high fixed costs relative to the returns banks can expect from their loans. This decline in profitability has meant a widening small business credit gap – even during an economic recovery.

Into the breach have stepped a host of companies hoping to leverage advancements in technology and the proliferation of data about small businesses to lower the cost of extending credit. As more small businesses utilize internet-based services for shipping, ordering, or record keeping; make or accept digital payments; and engage with social media, they are creating large, real-time datasets about their businesses that can be applied to credit underwriting. These developments are encouraging many new companies – or, in some cases, established companies with no history of extending credit – to begin offering small business financing products, often without the regulatory oversight and supervision applied to banks.

Marshall for The Hill, “GOP tax bill: Wrong debate at the wrong time”

Posted on by The Progressive Policy Institute

As President Trump and Republicans go full throttle to ram a partisan tax bill through Congress this week, let’s step back and ask a basic question: What does the U.S. economy need most today? The answer isn’t tax cuts – it’s public investment in modern infrastructure.

Having wasted most of 2017 trying to kill ObamaCare, however, Trump and his party have accomplished next to nothing and are desperate for a political “win.” Their budget-busting tax plan is designed to solve Republicans’ political problems, not the country’s economic problems.

From an economic perspective, the Republicans are fighting the wrong war in the wrong place at the wrong time.  Tax cuts may make sense when the economy is slowing down and needs a jolt. But with healthy business profits, a surging stock market and tight labor markets pushing up wages, there’s little need now for a dose of fiscal stimulus.

In fact, average working families finally are beginning to reap the gains of the long economic expansion that started under President Obama. Blue collar wages have soared in the last two years, growing even faster than those for professionals and managers. Despite all the populist angst about a “rigged economy,” stronger growth is narrowing economic inequality.

Continue reading at The Hill.

Bledsoe for The Hill, “Dems should offer own plan to destroy GOP tax nightmare”

Posted on by The Progressive Policy Institute

House Republicans have passed a grotesque tax giveaway to the richest 1 percent that will only exacerbate America’s biggest economic and political problem: the massive income inequality that inhibits broad-based growth and is leaving more and more Americans out of the middle class.

What’s more, the Republican tax bills squander essentially all the money needed for investments that would actually grow the economy to the benefit of all Americans; namely, rebuilding our antiquated infrastructure to be competitive in the digital economy.

Republican Senators have replicated these mistakes in legislation that has passed the tax-writing Finance Committee, adding repeal of a key element of the Affordable Care Act, to boot. They have now pledged to push the bill through the full Senate as early as this week and into an expedited conference with the House to be signed into law by Trump before Christmas.

Continue reading on The Hill.

Kim for The American Interest, “One of These Governors Could Save the Democrats in 2020”

Posted on by The Progressive Policy Institute

State-level Democratic leaders are showing how populism and pragmatism combined can energize liberal turnout while still winning crucial swing-state support.

Under a clear blue sky in late summer, with the peaks of the Gallatin Mountains as a backdrop, Montana Governor Steve Bullock mingles with guests at a private event on a ranch just outside Bozeman. Holding a plate piled high with barbecue, Bullock is half a head taller than most of the people here. He is genial and relaxed, in jeans and battered brown shoes. His nametag reads, “Governor Steve.”

A young mother brings over two little girls in flowered sundresses, and Bullock immediately drops down to eye level. A few minutes later, the girls leave with their mother, smiles on their faces, their votes no doubt locked up for 15 years hence when the girls will be old enough to cast a ballot. In half the conversations that swirl around Bullock, there are joking references to 2020 and hints about the Governor’s ambitions. It’s an open secret here that the Bullock might be running for President.

Just this past fall, Bullock won re-election over GOP challenger billionaire Greg Gianforte by four percentage points—50 percent to 46 percent—in a state where only 35 percent of voters chose Democrat Hillary Clinton for President and Donald Trump won by 20 points. That victory is Bullock’s calling card into the Democratic presidential sweepstakes, along with the prairie populist credentials he has burnished. As the state’s Attorney General, he endeared himself to sportsmen by authoring a state opinion guaranteeing access to public lands. He also took on the Supreme Court’s decision in Citizens United, defending the state’s ban on corporate spending (he lost when the Court reaffirmed its decision).

Continue reading at The American Interest.